NEW YORK — Visa Inc. posted a 16.4% increase in fiscal first-quarter profit as the credit-card processor continued to benefit from consumers' increased use of plastic while grappling with new federal rules that affect debit-card purchases.
The San Francisco-based company said Wednesday cardholders ratcheted up their use of Visa's credit and debit cards, driving up the volume of transactions it processed 8% to 13.6 billion.
"Consumers' desire to use our products is evident in the strong growth we see outside the U.S. and the resiliency we are seeing in the U.S. in the wake of debit regulation," Joe Saunders, chairman and chief executive of Visa, said in a statement.
Visa posted net income of $1.03 billion, or $1.49 per share, up from $884 million, or $1.23 per share, a year ago. Revenue rose 13.8% to $2.55 billion.
Visa's results beat the estimates of analysts, who were expecting the company to earn $1.45 per share on revenue of $2.43 billion, according to Thomson Reuters.
The company said its board of directors authorized a new $500 million repurchase program for Class A shares.
The results come as the world's largest credit-card network is trying to protect its market share in the face of new regulations that limit fees merchants pay to accept debit cards and forbid certain processing arrangements with banks.
The rules also affect Visa's biggest competitor, MasterCard Inc., and the banks that issue the payment networks' debit cards.
Visa and MasterCard do not lend to or issue cards to consumers; rather, they process transactions for the banks that issue their cards, including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co.
The new rules, known as the Durbin amendment, were part of 2010's Dodd-Frank Act. The first major provision, which took effect Oct. 1, cut in half the amount of fees that large banks can charge merchants every time a consumer swipes a debit card at their stores. Visa and MasterCard set those fees, called interchange, but they are collected by the banks as revenue, sparking concerns that the banks may pressure Visa and MasterCard to lower separate fees the banks pay them for their services.
The second major part of the law takes effect April 1 and puts an end to exclusive processing relationships Visa and MasterCard have had with some of their bank clients. Now banks must include at least two unaffiliated processing networks on their cards so that merchants have a choice over which to route transactions. That rule is expected to help smaller competitors to Visa and MasterCard that run their own debit networks as well as MasterCard, which has a significantly smaller share of the debit-card market than Visa.
MasterCard CEO Ajay Banga said last week that it has won new processing deals with a handful of large U.S. debit-card issuers, alluding to the provision but not citing the banks by name.
Visa has been restructuring the fees it charges merchants to make up for potential revenue losses. The company also has said it is approaching certain large merchants with incentive payments in an effort to get them to continue routing transactions over its network.
Merchant fees are a contentious issue in the card industry and could face further cuts as a result of long-standing lawsuits against Visa, MasterCard and several large banks. The suits take aim at the fees that merchants pay on credit-card transactions as well as Visa's and MasterCard's policies prohibiting retailers from surcharging customers who pay with cards.
The suits, brought by merchants including Safeway Inc. (SWY), Collective Brands Inc.'s Payless ShoeSource and Kroger Co., are set to go to trial in September but analysts predict they will be settled before then.
MasterCard said last week it took a $770 million pretax charge in the most recent quarter based on progress made in the litigation. Based on that amount, analysts estimate a total settlement involving all defendants could cost about $6.5 billion.
MasterCard is responsible for 12% of a monetary settlement under agreements it has with Visa and banks named in the suits. Visa would be responsible for about 67% of the amount, though it is shielded from financial liability as part of a plan it set up when it went public in 2008.
In December, Visa said it was depositing $1.6 billion into a litigation escrow account set up to pay for such a settlement, bringing the total in the account to about $4.3 billion.
In addition to a monetary award, a settlement could also include a reduction in credit-card interchange rates, which were untouched by the Durbin amendment. However, any such reduction is likely to be temporary, experts said.
In addition to laying out a plan to deal with the new regulations, Visa also has been investing in mobile and online technology as it looks to head off competition from Google Inc., PayPal and several wireless carriers that are pushing their own payment services. Such companies could create additional opportunities for Visa and competing card networks, but they also run the risk of diverting away the transaction volume that drives their revenue.
Visa is preparing to roll out V.me, a "digital wallet" that would allow customers to pay for purchases on mobile devices and websites by entering a username and password instead of typing in their card number for every transaction.
